12162016

Estate Tax Crystal Ball

Now that the somewhat surprising election results have had some time to be digested, practitioners within the estate planning community have been busy trying to advise clients within this uncertain environment.  A few conclusions seem to be commonly expressed.

  1. Quick and permanent estate tax repeal is unlikely. If the president elect decides to use his political capital to try to repeal the estate tax, he is unlikely to obtain the 60 votes needed in the Senate to make it immediate.  As a result, if it moves forward as a high priority, it is likely to have a sunset provision not unlike the estate tax repeal in 2001 which took ten years to take effect.  Remember that law had the exemption increase year after year over a ten year period. And, at the end of the period of time, the current administration voted to reinstate the estate tax with a higher threshold.  Since permanent repeal is unlikely it should not be relied upon when planning.
  1. Some individuals and their planners have advocated the delay of planning pending better identification of the direction of the administration’s plans and what might be more likely to be able to be implemented. We do not share that view. We recommend continued planning using current techniques but with an eye toward flexibility and what might be changing over the coming years.  Our position is such because rarely is tax planning the only reason documents such as trusts are created. Other benefits achieved by planning includes preserving wealth by enhancing administration in the present and successive generations, protecting assets from creditors, protecting assets from marital claims, and avoiding public disclosure in probate.  The long term planning that our clients do under our oversight must withstand current and future administrative changes.  Estate planning rarely should be made with a short term view because the winds of change blow constantly in Washington.  Steady, long term progress has proven time and time again to be the best strategy.
  1. The estate plans of many people reference the estate tax exemption equivalent ($5,490,000 in 2017) as an amount identified to go to children from a prior marriage or other parties. Some planning document language may reference the exemption amount as what passes to those parties.  As recently as 2008 the exemption amount was $2,000,000. As the exemption has increased, the amounts of individuals’ taxable estates change, or even the mere possibility of another drastic change to the estate tax looms, the effect of these changes should be reviewed very often.

As a result of the election, we recommend generally using presently accepted techniques with a more frequent review of your plan to determine whether or not any language in it needs to be altered.  We believe this approach will have the best likelihood of achieving your family’s goals for the present and upcoming years.  Call us to schedule a time for that evaluation.